Corporate Governance Auditing and Assurance Services

Question: Discuss about the Corporate Governance for Auditing and Assurance Services. Answer: Introduction It is argued that the main function of an auditor is to trace the fraud and highlight it so that a real view of the company is known to the public. The ISA 240 that is the International Standards on Auditing 240 provides guidance on the auditor responsibility to trace the fraud and error in the audit. As per ISA 240, fraud is defined as an act that is intentional in nature and deliberate. The global financial crisis exposed the fact that those charged with the management of the company tried to obtain an illegal advantage by use of means that is unfair in nature and this is one of the major reason the auditors are facing risk in the management of the company (Cameran et. al, 2016). Such fraud has eroded the smooth functioning of the company and appeared as a major constraint in the path of the auditors. It is the main duty of the management to check and prevent fraud so that the financial statements are unaffected. The process of audit is performed by natural or persons who are entitled legally, termed auditors that ascertain and assess in a profession way, information that links to a specific entity by utilization of defined techniques and tools so that evidence can be obtained named as an audit evidence and the preparation of an audit report is done that contains an independent decision of the auditor and is done adhering to the relevant rules (Cameran et. al, 2016). The financial audit projects the subject outside the accounting arena that contains accounting knowledge like economic analysis, ethics, and informatics. The financial audit projects the activity of the evaluation to help the auditor is providing an opinion in tune to the standards of the audit. The prime aim of the audit is to provide to the auditor to frame a notion on the financial statements in tune with the framework of the general financial reporting (Baldwin, 2010). Financial crisis and liability of auditor When the auditor plans their work, they collect, as well as evaluate the evidence of audit, the auditor must assess the risk of misstatement that is material in nature due to the provision of fraud and error (Messier Emby, 2005). If the presented financial statements project the inheritance the auditor contains two alternatives; one can be to express an opinion that is adverse or qualified or to remove. The auditing standards are the main area that the auditor need to ascertain and not traces any defects in the financial statement context. The auditor is primarily responsible to reasonable assurance that noting of materiality misstatement was witnessed (IFAC, 2015). Romanian economy was amidst in the middle of a global financial crisis that impacts both the budget of the government, as well as enterprises. In such a scenario, the task of the auditor becomes difficult in nature. Hence, when it comes to estimates it might be uncertain or unstable in nature. Therefore, the liability of auditor in the case of a financial crisis is more (Fazal, 2013). To trace the logical line of the definition of the financial instability, it is important to understand the definition of crisis. It can be termed as a manifestation of the difficult times that pertains to economic, social and political. It is highlighted by a tensed time span and disorder that the society witness (Fazal, 2013). The crisis can be cited for difficult situation of activities that pertains to the economic, a variation in the slowdown, decline, as well as stagnation in the activity of the economy. The financial crisis can be termed as a manifestation of the crisis of economy and projects mistrust in the financial scenario, the transactions in the stock exchange get impacted, the market mechanism fails to adjust. The financial crisis can be termed as an opportunity to correct various aspects of the financial system and the shortcomings that have caused it. It needs to be noted that the government, as well as other institutional takes, however, it requires times for overco ming such a crisis and important for the longer time scenario (Manoharan, 2011). However, in the shorter time frame, it is vital to find solutions that will restore the confidence of investors, as well as consumers. In the longer time frame the main problem arises with that of the principle adjustment that guides the reform of the international financial system and specifically that relates to transparency, enhancement of the regulations on securities so that market is properly regulated, integrity of the financial market is done and ensuring solidity to the cooperation between the financial institution (Lapsley, 2012). Framing of regulations It is the need of the hour that the financial system required an enhanced level of transparency in certain aspects. The initial being the players of financial market like hedge funds that play a pivotal role in the process of mediation however not affected by the stern rules relating to reporting. Developments of laws on the activities and reporting process will lessen volatility when the situation of the market decline. The establishment of the new financial tool is difficult to ascertain a price for them, however; the same situation raises a question about the risk origin behavior of the investor. The chance of correctly evaluating the risk and tracing the risk bearing capacity will enable an enhancement of the regulation and governance of the financial system. Further problem arises is that of the assessment of the performance of the model investment portfolio and identification of manner to avoid risk. As per ISA 200, an auditor is needed to provide an opinion that contains a gen uine view and must adhere to the relevant framework of financial reporting. The audit process must be done in a manner that follows the standards; the auditor report is duly signed and sent to various parties including the owners. An auditor can be termed as a professional entrusted with the task of providing a notion on the entitys financial statements; exposure of the auditor is there to considerable liability . When an audit mission is performed, the financial auditor assumes an enhanced level of responsibility as per the terms of the engagement of the audit and the rendering of the services. The initial assumption lies in the fact that the liability of the audit is in tune with the audit engagement (Roach, 2010). When the letter of engagement is signed the audit states the main terms and the mission type that will be in link with the standard of accounting, insurance, as well as other relevant principles. When the nature, duration, as well as extent of audit procedure is determi ned and during the evaluation process of the audit evidence the auditor must bring enhanced level of professional behavior, assessing the financial statements and proving that it is free from any deficiencies. At times, it can be seen as weak procedures of audit to trace misstatements of material nature that are hidden by a bunch of people assuming places of high position. When the auditor works is ascertained to know about his roles and responsibilities the opinion needs to be reviewed. Auditors responsibility The main duty of an auditor is to give a notion on the financial statements that confirms the fairness in the material aspect and the financial statements. At times, it may happen that the auditor might not issue any opinion then it is believed that the auditor cannot use the regulations or the scope has some constraints. If the auditor provides an adverse opinion then all matter in the financial statements are correct. In such a situation, the responsibility of the auditor is gauged from the view (Church et. al, 2008). However, auditor liability might increase due to the happening of incidents after the date of the balance sheet. IAS 10 happens after the date of balance sheet meaning such events that are favorable, as well as unfavorable that happen amidst the date of balance sheet and financial statements date that are kept for filing. Specifically two ways can be found that are highlighting evidence of existing condition at the date of the balance sheet and another being the event s that do not influence the financial statement adjustment (Livne, 2015). There is even a responsibility that links to the work quality and the audit work. The main tool is the team work. IFAC has stressed a lot of focus on quality control. Quality control is a boon when there are procedures in written, present for reduction of the risk during the mission. It is important to know that the financial audit ensures the level of quality control. The auditor is majorly responsible for the evaluation and utilization of the system of internal control and needed to take responsibility for the work (Heeler, 2009). If the system of internal is not properly designed or there is not present then the auditor will not trace bigger risks. The international auditing standards are two types that are the fraud and error. Normally, the main aim is to trace fraud, as well as an error but as per ISA 240, the responsibility of an auditor is to consider fraud when it comes to an audit of the financial statements (Church et. al, 2008). The responsibility to prevent any fraud rest s with the management of the entity that must continue through the process of implementation and operation of the system that is adequate and links to accounting and internal control (Kaplan, 2011). However, it needs to be noted that the financial auditor cannot be held responsible for the fraud prevention but tolerates the responsibility of planning and performing an audit to collect reasonable assurance that financial statements are not inaccurate in nature that relates to fraud and fault. It will be a difficult task for the financial auditor to trace all fraud and error then it might develop innumerable errors that are the major importance of the financial auditor that spot the express of the opinion (Cappelleto, 2010). In this manner, the auditor tries to provide support to the entity that is audited, a document termed as the factors of risk that provides a gist of the risk factors that will support the evaluation of the exercise. The risk factors are classified into two major c ategories that are the risk factor extracted from the financial reporting that is fraudulent and the risk factor on errors derived from the asset misappropriation (Gilbert et. al, 2005). The standards of auditing make no classification when it comes to the statutory liability auditors in terms of fraud detection from the auditors financial liability. When it comes to error and fraud, the financial auditor is required to collect and give assurance that the financial statements have information that is correct in nature. However, it is a well known fact that it is harder to detect fraud in comparison to the errors that are unintentional in nature that the managers commit. However, this problem in tracing of fraud does not reverse the auditor responsibility for the audit engagement that is successful in nature. Another liability of financial auditor is linked to the manner of corrections, alterations to be done of the financial statements. An auditor is required to make adjustments of corresponding nature in the financial statements of the opinion so reservations fail (Gay Simnet, 2015). Hence, it follows that there maintains a direct liability that is related and compliance with the standard of reporting even considering the fact that there is an exclusive responsibility of the management of the entity that is audited. The responsibility of the management is more than that of the auditor as they are entrusted with the financial statements preparation reporting framework that is specific in nature. In this manner, it is essential that the declaration of conformity must be provided that states the management provide the auditor with the relevant information needed (Gay Simnet, 2015). There are various internal, as well as external pressures on the auditor and with the heavy scandals, there is an enhanced level of responsibility assigned to them. There are various standards that are legally enforceable and this is in tune to the various pressure faced by the auditors like the Sarbanes-Oxley Act 2002, Section 10A of Securities Exchange Act, 1934, etc. the standards are present to safeguard the interest of the auditor (Hoffelder, 2012). There are various conflicts that might arise in the course of activity and duty. Therefore, to keep any conflict at bay various regulations has evolved. At times, the auditors are not aware of the conflict or the discrepancy and hence considering the said matter there is protection for them (Coram et. al, 2011). The auditors can raise their concerns to ASIC over various matters and it is a body that helps to safeguard them. In short, the provisions and the regulations are designed so that any situation does not hamper the profession. Conclusion When it comes to the process of audit and auditing, the vital provision is to ascertain that whether the information is recorded properly. It must reflect the economic events that happened during the accounting year. When it comes to the audit of financial statements, the adherence to the principles especially the GAAP is needed. Apart from the understanding of the accounts, it is important that the auditor must have expertise in the collection, as well as interpretation of audit evidence. There have been major scandals in the past that involved auditors owing to the flaws and incorrect practice. A glaring example is that of Enron that led to the defame and decline of the firm Arthur Andersen. This happened as all stakeholders lost their confidence in the management (Kruger, 2015). In any scenario, it is important that the responsibility of an auditor is questioned and this can be done when there is a strong link between the customers. The audit must be conducted to consider the need of ethics and even that of the accounting standards. Planning, as well as the execution of audit, should happen after all the relevant rules and regulations of the International Auditing standards are done so that fewer elements are questioned when it comes to the liability of auditors. The role and responsibility of an auditor have undergone a sea change and with major scandals, the profession is attached with double responsibility (Parker et. al, 2011). The bitter memories of Satyam, Lehman brother, Enron is still hunting the profession and adds to the criticism. As per the entire discussion it can be said that the auditor faces an inevitable risk as fraud and error can still happen even after having a strong audit. However, the emergence of corporate governance and other principles of auditing has provided an enhanced degree of safeguard. References Baldwin, S 2010, Doing a content audit or inventory, Pearson Press. Cameran, M., Prencipe, A. Trombetta, M., 2016, Mandatory audit firm rotation and audit quality, European accounting review, vol. 25, no. 1, pp.35-58. Cappelleto, G. 2010, Challenges Facing Accounting Education in Australia, AFAANZ, Melbourne Church, B., Davis, S. McCracken, S 2008, The auditors reporting model: A literature overview and research synthesis, Accounting Horizons vol. 22, no. 1, pp. 69-90. Coram, P., Mock, T. J, Turner, J. Gray, G 2011, The communicative value of the auditors report, Australian Accounting Review vol. 21, no. 3, pp. 235-252. 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